Stock-outs lead to walk-outs

Large-scale consumer research across 29 countries has shown that when consumers did not find the exact item they wanted, nearly one third went to another store to buy the product, while less than half bought a substitute.

Retailers find stock-outs annoying, just like everybody else. But they live with gaps in their inventory because they figure the fix is more expensive than the problem. After all, they tell themselves, when customers can’t find the products they’re after, they’ll usually substitute similar items for the missing ones. Maybe some profit will be lost in the swap, but that’s a marginal cost of doing business. Right?

This approach is living with the problem without getting deeper into what causes stock-outs. Large-scale consumer research across 29 countries has shown thatwhen consumers did not find the exact item they wanted, nearly one third went to another store to buy the product, while less than half bought a substitute. More significantly, stock-outs harm customergoodwill.

In fashion, due to the lead times and product lifecycle, few products continue over time. This poses thechallengeof replacement over and above replenishment.

We attempted a causal diagram of why stock-outs occur. The result is as follows.To improve anything, we need to measure first. The metric to measure availability is the In-stock rate.Research has proven that retail stock-outs are on an average in the order of 25-35% and stock-outs are higher in fast moving items. While in-stock % is the traditional measure, it does not capture the demand loss. For example, if the slow movers are high in-stock, it will hide the real demand opportunity loss. A new metric which will help you discover real demand opportunity is Sales capture rate. You can calculateSales Capture Rateby weighting the in-stock rate by the sales rate. For eg, if the in-stock of an item is 90% and sales rate 10%, the item has only 9% weight to your in-stock whereas a 90% in-stock of a 30% sales item will give you a 27% demand opportunity.

These metrics In-stock % and Sales Capture rates give us the extent of the problem, but they do not help us solving execution problem of making availability happen. As many fashion items are non-recurring, we need to intervene manually and find out what the similar items are. Considering a100 store distribution with 1000 options, that isa 100,000store-option combinationsto analyse and find the right product to right store. This is impractical to do manually unless one makes broad approximations.

Going a step deeper on why this problem occurs, fashion cannot be narrated in a text, and visuals play a key role in making any decision, whether it is design, buying and replenishment too. While design and buy decisions are made visually, replenishment decisions are still on codes and text descriptions.

It is time for the fashion industry globally to operate beyond anEAN Codethat reflects how consumers view fashion items, thus a need of creating aVisual Article Signature (VAS)which must encompass a combinationof both aesthetic and semantic attributes.

This is a non-trivial problem, as the solution lies at the intersection ofComputer Vision and Text Processing with deep fashion abstraction.

We expect the future of fashion retail will be real-demand driven, including replenishment.

DISCLAIMER: The views expressed are solely of the author and ETRetail.com does not necessarily subscribe to it. ETRetail.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.

Ganesh is Founder & CEO @Stylumia ,a technology venture solving real world problems in fashion and lifestyle businesses using AI, an experienced retail professional who has had long stints with India's leading fashion and grocery retailers. He was earlier the Chief Operating Officer of the fashion e-tailer Myntra. Prior to this, Ganesh was head, merchandising at the then Bharti-Walmart venture. Subramanian has also been with reputed fashion retailers namely Reliance Trends, Arvind Brands, Tommy Hilfiger and Indus League Clothing. He loves solving real world problems using Tech. His personal Blog: https://medium.com/@ganesh.subramanian

Ganesh is Founder & CEO @Stylumia ,a technology venture solving real world problems in fashion and lifestyle businesses using AI, an experienced retail professional who has had Show more.. long stints with India's leading fashion and grocery retailers. He was earlier the Chief Operating Officer of the fashion e-tailer Myntra. Prior to this, Ganesh was head, merchandising at the then Bharti-Walmart venture. Subramanian has also been with reputed fashion retailers namely Reliance Trends, Arvind Brands, Tommy Hilfiger and Indus League Clothing. He loves solving real world problems using Tech. His personal Blog: https://medium.com/@ganesh.subramanian